VAT on new homes is an economically illiterate proposal

Say you chose not to have a second hand home but to buy a brand new house priced at £100,000. Plus VAT at 17.5% the amount you need to part with is then £117.500. On a 100% mortgage you would owe £117,500 but own equity with a value of £100,000 and are immediately in negative equity.

100% mortgages are no longer on offer so you would be paying a deposit of between 10 and 20%. At 10%, that is £10,000, you need to borrow £107,500 against a property worth £100,000 and no bank would allow that. With a 20% deposit, that is £20,000, you need to borrow £97,500 and on selling that house would have only £2,500 to offer as a deposit, to cover legal fees, and tax charges.

So if VAT were to be charged on new houses as proposed by the Lib Dem manifesto nobody could buy a brand new home and no bank could lend on one. When you buy a house you add all costs onto the amount you need to borrow.

They say on Page 81, (that a Lib Dem government would) “Protect greenfield land and our built heritage by reducing the cost of repairs. We will equalise VAT on new build on an overall revenue-neutral basis. This will also reduce the costs or repairs to historic buildings.”

That could not mean both repairs and new builds would be zero rated, the EU would not allow that. It means the full whack on both, or what? They do not specify, but suppose they decided to level the two at 10% of any number between 1 and 17.5 how could that be done? All homes need maintenance money spent on them every year so someone would have to decide what is regarded as part of an established building and liable for a reduced VAT rate. Landlords now know that central heating, secure doors and windows, carpets, curtains, cooker, fridge and washing machine are included in a refurbishment programme as standard. Would they all now be at a reduced VAT rate and at what cost to the exchequer?

They do say they want to retain green land unbuilt on, but what it would achieve is a massive worsening in the housing shortage.

And one point that really bugs me - I object to people regarding all land and buildings in Britain as a national heritage as if belonging to all when I know I am the only one paying my mortgage and repair costs, that farmers are alone in facing the costs of repairing and maintaining land, public rights of way, gates and all trees and buildings thereon.

http://www.libdems.org.uk/our_manifesto.aspx